Leading Acquisition International Advisor 2013

Philippines 2013: Investor and Financing Sector Confidence in a Growing Economy

The overall investment climate in the Philippines in the past two years is undoubtedly very promising. Growth forecasts were increased in January 2013 by market observers and the Philippines was given an investment grade rating by Fitch Ratings in March 2013, raising the country’s long-term foreign currency debt to BBB- from BB+.

Martinez Vergara Gonzalez & Serrano (MVGS) was actively involved in some of the major deals that were successfully undertaken in the last two years, more particularly in the areas of acquisitions and project finance. For the partners of the Firm, the investment upgrade hardly comes as a surprise, considering the upsurge in investment and lending activities both from the public and private sectors.

In particular, Philippine banks and financial institutions (FIs) have been actively financing Public-Private-Partnership (PPP) projects. MVGS acted as counsel for the largest bank in the Philippines, BDO Unibank, Inc., and government FIs Development Bank of the Philippines and Land Bank of the Philippines in the P11.5 billion (about US$282 million) fund-raising for the Tarlac-Pangasinan-La Union Toll Expressway (TPLEX) project in June 2011, a project which garnered the Asia-Pacific-Transport Deal of the Year award of the London-based Project Finance. MVGS has also acted as counsel to the consortium between Megawide Construction Corporation and Citicore Holdings Inc., which was awarded the P12.8 billion ten-year contract under the Public-Private Partnership for School Infrastructure Project (PSIP) of the Department of Education for the construction of 7,100 public classrooms. The consortium recently concluded the successful offering of P6.5 billion corporate notes to partially finance the PSIP.

With the availability of cheaper funds, a number of holders of similar government concessions refinanced their project debts in the first quarter of 2013, such as water concessionaire Maynilad Water Services, Inc. (Maynilad) for an aggregate P22 billion (about US$550 million), and land titling modernization franchisee Land Registration Systems, Inc. (LARES) for P6.5 billion (about US$162 million), both arranged by leading investment house, BDO Capital & Investment Corporation.

In acquisitions, major deals of note include the P800 million acquisition by Pacific Meat Company, Inc. (a wholly-owned subsidiary of Century Canning Corporation) of the trademarks of “Swift” and “Swift’s”, formerly manufactured and distributed by RFM Corporation. Last month, the Firm closed a deal for an integrated hotel casino and entertainment complex involving an investment of at least US$1 billion to be operated by Macau gaming giant, MELCO Crown Entertainment (listed with the Hong Kong Stock Exchange and on the NASDAQ Global Select Market). The Firm represented listed companies SM Investments Corporation, the biggest conglomerate in terms of market capitalization in the Philippines, and Belle Corporation in the deal.

From the Firm’s perspective, the above deals and other acquisitions and financing projects handled by MVGS in the first quarter of 2013 and in the past two years indicate a growing confidence and optimism on the Philippine economy from both institutional investors and the financial sector. The Firm hopes that this growing optimism will translate to more significant deals in the next year or two, although it is the Firm’s view that the country needs to catch up in terms of faster improvement in transparency and efficiency in government processes, as well as certainty in tax and fiscal administration, which are aspects of the business environment that are perceived to be equally important in achieving continued economic success.